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Discussion of “An Integrated Framework for Multiple Financial Regulations”

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  • Tobias Adrian

Abstract

A 2012 paper by Goodhart, Kashyap, Tsomocos, and Vardoulakis (GKTV) proposes a dynamic general equilibrium framework that provides a conceptual?and to some extent quantitative?framework for the analysis of macroprudential policies. The distinguishing feature of GKTV?s paper relative to any other on macroprudential policy is its study of a setting with multiple financial frictions that permits the analysis of multiple macroprudential policy tools at the same time. The modeling approach includes various market failures such as incomplete markets with heterogeneous agents, fire-sale externalities, and margin spirals, all of which provide rationales for policies designed to improve welfare. In GKTV?s model, liquidity ratios are found to be more efficient preemptive tools than capital ratios or loan-to-value ratios. However, these liquidity ratios need to be relaxed in times of crises in order to reduce adverse effects from fire-sale externalities. It remains to be seen how robust these findings are in alternative, fully dynamic settings. Furthermore, GKTV?s approach does not address the tension between micro- and macroprudential objectives, and the timing of the buildup and release of policies is not specified precisely.

Suggested Citation

  • Tobias Adrian, 2012. "Discussion of “An Integrated Framework for Multiple Financial Regulations”," Staff Reports 583, Federal Reserve Bank of New York.
  • Handle: RePEc:fip:fednsr:583
    Note: For a published version of this report, see Tobias Adrian, "Discussion of "An Integrated Framework for Multiple Financial Regulations"," International Journal of Central Banking 9, no. 1: 153-166.
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    References listed on IDEAS

    as
    1. Markus K. Brunnermeier & Lasse Heje Pedersen, 2009. "Market Liquidity and Funding Liquidity," Review of Financial Studies, Society for Financial Studies, vol. 22(6), pages 2201-2238, June.
    2. Tobias Adrian & Nina Boyarchenko, 2012. "Intermediary leverage cycles and financial stability," Staff Reports 567, Federal Reserve Bank of New York, revised 01 Feb 2015.
    3. Michael T. Kiley & Jae W. Sim, 2011. "Financial capital and the macroeconomy: a quantitative framework," Finance and Economics Discussion Series 2011-27, Board of Governors of the Federal Reserve System (U.S.).
    4. Adam Ashcraft & Nicolae Gârleanu & Lasse Heje Pedersen, 2011. "Two Monetary Tools: Interest Rates and Haircuts," NBER Chapters, in: NBER Macroeconomics Annual 2010, Volume 25, pages 143-180, National Bureau of Economic Research, Inc.
    5. Kevin Moran & Cesaire A. Meh & Ian Christensen, 2010. "Bank Leverage Regulation and Macroeconomic Dynamics," 2010 Meeting Papers 757, Society for Economic Dynamics.
    6. Goodhart, Ch. A. E. & Kashyap, A. K. & Tsomocos, D. P. & Vardoulakis, A. P., 2012. "Financial Regulation in General Equilibrium," Working papers 372, Banque de France.
    7. Angeloni, Ignazio & Faia, Ester, 2013. "Capital regulation and monetary policy with fragile banks," Journal of Monetary Economics, Elsevier, vol. 60(3), pages 311-324.
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    More about this item

    Keywords

    procyclicality; macroprudential policy; microprudential policy;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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